live meeting as janet yellen presses for congress. a handshake and a golf game. president trump eases trade tensions with japan as just intradermal steps into the hot -- as justin trudeau steps into the hot seat. nasdaq, small caps, and s&p trading at record highs. a very warm welcome to you, i'm alix steel alongside david west and jonathan ferro is off. on rally continuing from friday, s&p futures grinding higher as we prep. it's all about the stronger dollar, coming off its first week of gains since december. a powerful rally as treasuries continue to sell off and european stocks inch higher. where are we at? the vix is going nowhere, copper catching a nice bid, crude a little softer on the day. now let's get an update on

what's making headlines outside the business world. here's emma chandra. emma: a senior white house adviser says the travel ban -- stephen miller ruled against the ban took power in what he called -- >> i want to say something very clearly, and this will be very disappointing to the people protesting the president and the people of congress like senator schumer who have attacked the president for his lawful and necessary actions. the president power's here are beyond question. emma: they say the white house is considering all options, including an emergency stay at the supreme court. the kremlin says vladimir putin may meet president trump in july at the g-20 meeting in germany. there are no details of an earlier meeting. russia and says that the u.s. have not discussed former national security agency employee edward snowden, who fled to moscow. his lawyer rejected a report

that russian officials are considering handing him over to the u.s. president trump meets with justin trudeau, who pledged to renegotiate nafta, threatening to disrupt more than half a trillion dollars. two leaders will hold a news conference at 2:00 p.m. eastern time. you can watch it here on bloomberg television. global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. chandra. this is bloomberg. david. david: thanks. for more on the meetings with japan and canada, return turn to our chief washington correspondent. welcome back to the program. before we turned what's coming up today with the prime minister, let's talk about abe. andrime minister abe president trump were sitting down at mar-a-lago for dinner when, all of a sudden, they

received word that north korea was testing a midrange missile. of course this wasn't a long-range missile, however the sources i am speaking with believe this was directly timed to impact the meeting. however, when you take a look back at what president trump has tweeted about during the campaign cycle, he had some pretty tough talk for the north korean dictator. but now we are seeing that he is issuing a much more measured response. he is not going after them aggressively, but this is what many recalling one of his first foreign policy tests in the region. david: it gave him the opportunity to say we are 100% behind our great ally japan. so turn out to today, where the president will be meeting at the white house with prime minister trudeau. what's on the agenda? >> nafta, nafta, nafta. this is all about whether justin judtrudeau is able to negotiate withih the administration.

this progressive young rising rockstar in canada has issued tough talk against this administration, and of course you couldn't have two more polar opposites meeting at the white house. but this is all about trade. the administration feels they have leverage. the canadians are concerned that president trump's tough talk with mexico could actually reverberate and negatively impact their own negotiations with united states. david: thanks so much. our chief washington correspondent. for more on trump, we are joined now by the head of global rate strategies. the president is meeting with prime minister trudeau. how in debt is canada to the united states? when it comes to trade, they depend upon us. a lot. >> right. this is the largest trading partner for canada. how much is is

traded being used as a zero-sum game by the trump administration? throughout the campaign there was -- if somebody else is benefiting from trade, we must be losing out, america first. what we have seen over the last week is some fighting back. we haven't heard anything around currency manipulation. the hope is that the administration realizes trade is not a zero-sum game, and we have to renegotiate parts of nafta, maybe undo tpp, but overall, traits does benefit the u.s. if you get big picture comments, i think the market will be comfortable. alix: we have breaking news -- saudi arabia is telling opec it will cut oil output by the most in eight years. we already heard from iea on friday, secondary sources show total output fell a january putting the total little above what the iea thought. these headlines are all about compliance, and if i take a look at the news, it's spiking a bit

higher, just down .2%. we will be digging deeper into that later on in the show. david: they want to make this work. no question. alix: and it's under 10 million barrels per day. to your point, an interconnectedness of the u.s. and canada, i have a great function which shows supply chains. come inside the terminal. i randomly picked gm, and you can. search by country five. -- you can search by country. to your point, it is not as easy as being zero-sum. there's a lot of risk for the u.s. >> exactly. there are certainly headlines on the trade front, but what i think the market will assume is a border tax. thereesident has said will be a major border tax, and he has talked about a phenomenal tax plan. does the president endorse house

republicans and their voter adjustment -- their border adjustment tax? if you are going to impose a significant border tax, that will hurt the rest of the world significantly. alix: and the question isn't what does canada want to do. the negotiations will be pivotal, but they might have to produce some kind of big monetary stimulus, because the fiscal side can't do it and they will lose a lot of money. there's potentially a sort of an fx channel, there is also a potentially fiscal channel. does trudeau come out with a significant fiscal plan? he hasn't delivered that much, you have aoping, if canada that is suffering you will get some fiscal stimulus mroe then what have -- more than what has happened. david: thus far, the jargon coming out, the language has not been directed at canada.

it has been china and japan and germany and certainly mexico. so really, what does president trump want out of canada? is there anything he is asking for from trudeau? >> there's nothing very clear in terms of against canada. the issue is a broader border tax adjustment that would hurt canada significantly. even if there is nothing directly against canada, what will hurt it significantly is if we decide to tax all of our imports by 30%, 35%, and not tax exports. that will hurt canada. david: at the same time, to what extent does trudeau need to keep nafta together? even though he is not getting the brunt of criticism, he doesn't want nafta to go away. >> i agree. the question is are we going to do a significant overhaul? will there be negotiation? that has been an issue for a while. if we just do the margin changes, i think that will be

beneficial either way. the hope is going to be that there's not a significant overhaul. alix: here's what i don't get, the conflicting sides. on the one hand, he is pro-keystone pipeline. that means more canadian oil coming into the u.s. canada is the biggest exporter of oil to the u.s. and the world. you have that, and then you have nafta, we have to fix the trade deficits. how do you understand, when you are trying to model your estimates and what will happen to yields, how do you model those? >> significant policy uncertainty. all forecasts have to have a much higher standard deviation. then we look at details. the market is extremely optimistic around his tax plan. all we know is that there's intent from the administration. we have no details. when i forecast anything, if you get border tax -- if we simply get a reduction in tax rates, i think there is reflation. if you change productivity, now

we are talking about a much more significant impact to the economy. i think there is policy uncertainty. i would look at big picture, but not take significant positions. you're supposed to keep it dry. david: one of the details is who is going to be responsible. when you go back to prime minister abe, an interesting development was he said we will handed over to the vice president, to the deputy prime minister, let's take it down. is that encouraging to markets? >> absolutely. for example, when it comes to china, to the extent that it goes to the treasury secretary, there's a sense that they aren't letting the currency depreciate too much. if he's willing to delegate, i think a lot of the analysis will come out to show that, for example, trade is not a zero-sum game. alix: priya will be sticking with us with more on the

reflation trade. a quick programming note. president trump is set to meet with justin trudeau in washington. we will bring you that joint news conference at 2:00 p.m. eastern on bloomberg television and radio. up next, markets across the mode, movingy higher, speculation of reflation trade. the trade is shor treasuryt, long. mode, moving as we had to break, i want to show the intraday chart, negative on the day. opec has cut production by 496,000 barrels per day in january and is willing to do so at an eight year low. more on that next. this is bloomberg. ♪

alix: the trade on this monday morning, treasuries go along the dollar. the chief economic advisor wrote in a piece today that last week's stock gains are better thought of, at least for now, as part of the more volatile period for stocks in the post trump election era, or the third phase of the trump rally. he also went on to highlight the influence of the white house on the markets, and that it is not just limited to the u.s. still with us, td securities head of global rates strategy. what's the conviction like? >> low. it was much easier a month ago, we were saying go short treasury. it's not clear, that rates have to go higher. but we heard from the president last week was a phenomenal tax to go but we still need

through and consensus on border tax. i'm not sure -- i'd say conviction level of the curve, on duration is low. my highest conviction trade is to be long. inflation risk, whether you look at reflation -- it should be priced much higher in the treasury market. alix: so can w expect strong demande? a lot of people are saying that's the trade. >> i think so. i'd say, even if you look out own targetthe feds' is 2.5% on cpi. valuations are fairly cheap. david: reflation versus stagflation, what determines it? he said, we are really facing a junction here. betweenreally a race the progrowth policies of president trump in the trade issues? >> absolutely. if we get significant protectionism versus fiscal

stimulus, that should be the difference. protectionism with the trade, border adjustment tax. is it a broad-based border adjustment tax, or is it just a relocation penalty? we have to see where he comes out on this, and if he's able to get house republicans on board, then the deficit is going a lot higher. david: we are all reading tea leaves right now. we are anxious to know the answer. but is it not so much the phenomenal word as the two to three weeks timeframe? can you put a time frame on tax reform? we'll have a timeframe on trade. >> true. i think it's highly correlated. if you have significant tax reform with border adjustment tax, it has trade implications. the trade parties renegotiating nafta. i think with taxes, it's interesting, because the market for the last couple weeks -- and i have been extremely pessimistic in the first or even second quarter.

what we heard from paul ryan, that's much later. the not a 2017 issue -- president saying two to three weeks, made the market extremely optimistic of tax reform. all we get into or three weeks is where he stands on it. we still need details. we steal need consensus -- still need consensus reform. is he able to get 60 senators? highly unlikely. ownnciliation is its process, and i am a little concerned that obamacare is a first priority. that goes the reconciliation first. when are we actually getting tax reform? i think the market did seize on two to three weeks but all you will get -- it's an important step, but it doesn't imply a quick passage. alix: i have to wonder if the market was skeptical, or euphoric. theon the 10-year is

average of 2017 so far. yes, we had a rally in treasury markets, then it came back down. but at the end of the day you have shorts that are skittish, and you have no one really wanting to take big long positions. what do you do with the treasury market with that? >> i think you trade a narrow range. 2.25 to 2.50. the market gets excited beyond 2.50, but it's not clear. unless we see significant consensus emerging. alix: does that mean the equity market is wrong? they are at record highs. are they wrong? >> i think the markets are giving conflicting signals. the treasury market is saying hold off, the equity market is euphoric. ofs clear that the details the tax reform will have significant winners and losers. if i was at equities, i don't know about owning s&p as opposed to more domestic looking companies rather than trade

sensitive companies. david: here in new york city, it's all about trump and what happens here. there's a global reflation going on, bigger even than donald trump. >> absolutely. and that's the question for the rest of the world. can you see any easing up of the monetary foundation we have had? does the ecb at some point recalibrate? they have been saying they are to tapering -- do they lower it? if you get global rates slightly higher, even 10, 20 basis points, i think that spurs treasuries even higher. absolutely the question for japan and europe is do you get any pullback from monetary foundation? monetary policy is extremely accommodating. alix: you are sticking with us. and coming up, the biggest cut oil production in more than eight years, saudi arabia giving oil prices a boost, saying it may cut output of more than 700,000 barrels per day in january.

crude off the lows of the session but down on the day. this is bloomberg. ♪

alix: the biggest cut oil production in more than eight years. saudi arabia giving a boost oil prices, telling opec it cut output by more than 700,000 barrels per day in january. look at that crude, off lows of the session. joining us on the phone is tom petri, tom, what did you make of this headline? saudive oil prices -- arabia cutting production by 496,000 barrels per day, opec over 700,000. where are we in rebalancing? >> we are on the way to success, i believe. saudi arabia is doing what they need to do to keep russia and iran, the other two big players, on board, and what we see is the saudi priorities to set the

stage for their ipo launch next year on saudi aramco. -- isthis question is saudi arabia is producing under 10 million barrels per day. does that kind of thing sustain? you can make an argument that the markets will look at the average cut over six months, and we could see opec increase production in the next few months. >> well, remember, we have seasonality to deal with. demand is going up, and that's a factor we have to deal with. alix: so what does that mean, then, for production? >> i think we are on the path to a relatively successful rebalancing. the lesser players, by and large, don't have much flexibility to increase. if it were to go off the tracks, iraq and lydia are the two to keep an eye on. iraq is on board and libya is still -- still has a lot of turmoil. that probably constrains how

much they can overproduce. alix: so where does this leave the markets? when will we see this doctor on? it's not just about cutting. they need to make a difference in the market. >> you are right about that. basically, we don't know just where we stand on global demand growth, and if there's a need for opec to do more and saudi to do more, it'll be because we have a shortfall in global demand in order to keep it on board. alix: and the third factor -- you have opec in demand, and then you have u.s. production. saying non-opec supply growth has been revised up. is u.s. supply growth growing to grow fast enough -- going to grow fast enough? >> that will be a bigger problem in 2018 than it is now. yes, we think that,

are recovering a couple hundred thousand barrels per quarter, but i don't think it's big enough by itself to be a big problem until late this year, going into next year. saudi is going to be tested still as we get to the first half of 2018. but everything that is happening now so far is better than i think history would have suggested in terms of past behavior. alix: an when you taked a look at market positioning, $51 for wti, $55 for brent, how our markets position for that? >> well, i think the markets are fine. there are other variables that we are going to have to watch. you talked about u.s. production coming back. the other one is the border adjustment tax. back in be a real, getting factor, if it actually comes to pass. there are a lot of other reasons why that border adjustment tax

is going to be imposed by various parties. there are convocations for u.s. production, if it actually becomes a reality. alix: great to have you on the phone, thank you very much. tom petrie. david, there is still going to be a lot of headline confusion. secondary sources say opec only cut by 400 something, opecy saying we cut by 700. they are still going to be tracking the headlines. david: saudi arabia is a guarantor. coming up, investors will see clues in a rate hike. janet yellen coming out today, and we are joined by eric nielsen, unicredit global chief economist. this is bloomberg. ♪

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record highs. we are seeing that spread over to european stocks. they are up 0.6%. the other story is the dollar strength. it is coming off its first week of gains sent december. it is continuing those gains. i want to highlight the dollar versus the canadian dollar as a trump and justin trudeau me today. 0.4%/is down by 0.4%. emma: the united nations security council will hold a meeting tonight about the north korean missile test. it landed in the sea of japan. japan is urging china to take action against north korea. among concerns that north korea will be able to develop their missile technology enough to put a nuclear head on one of them.

188,000 people have been urged to evacuate because there is concerns that the spillway could fail. over the weekend, the emergency was opened for the first time since the dam was built about half a century ago. tens of thousands of protesters again demanded that the government step down. it is the 13th straight day of protest in romania. global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. alix: we are just hours away from president trump meeting with justin trudeau as he steps onto board the plane to washington, d.c. distinct meeting

between the two leaders. a topic of conversation will be after. david: when janet yellen testifies before congress tomorrow and wednesday, a principal focus will be on where the federal reserve is on rates and how likely a march increase is. we are joined now by erik nielsen, a chief economist at unicredit. he's joining us today from our your link -- berlin bureau. eric, if you look at the dual mandate of inflation and employment, is there any reason for them not to raise in march? erik: no, no. i believe that by any stretch of the imagination, they are already behind the curve. in the last two years, we have seen they are very worried about risk.

david: does the risk cut both ways? that she possibly signal she does not believe in the trump administration's likelihood of success? erik: that is certainly a risk, but i think it is worth remembering that they are, on purpose, a bit behind the curve in terms of normalizing rates. they have been a little late instead of being ahead of the curve. coming back to your first question, in terms appear economics, they are behind the curve. .e have inflation picking up about 2% over. i'm not saying rates should be a lot higher, but they are definitely a bit behind the

curve on economics. here, it is an issue of what happens if something does not quickly -- not quite go well. worried to be honest, and i suspect they are, too. alix: if you look at what the markets are actually looking at, the fed probability of a rate hike has been shown it is slipping sense the rate hike in december. if the market see one thing, and -- seasonems something else, they usually come down to meet the market. will this time be different? priya: i do not think so. i think it is an open question if we are behind the curve. the fed may think they are not behind the curve, but they have been slow to hike. the reason for that is that they economy canhe

attract people back into the labor force. it is working. is a do not think there reason necessarily for them to hike in march, but i see your point. if she sounds to dovish, it is a problem. explicitly mentions a hike, then i think we look ahead to see when the investment start. think you hear a cautiously optimistic tone. a few hikes are relevant. i think she will continue to push them until they recognize the participant -- participation rate has practically bottomed out. eric, if they want to remain somewhat dovish, does this really take off the table the question of the balance sheet? some have suggested maybe we

should think about reinvesting our money -- does that really shut that down? erik: i think it does. i have trouble seeing the argument that they are not behind the curve to be honest. you have to be very optimistic about the active labor market to think they would come in again with a little more activity. the fed is in a tough that i would argue the fed is in a tough position, because in the world -- it is not only the u.s.. the whole world is looking better over the last quarter or two. the u.s. and u.k. seem to be hanging in better. is the way -- weighing of the risk that i think has the fed concerned. alix: is there risk if the fed

needs to move that the trump administration will stand in the way of the scope policy? -- fiscal policy? does that kind of highlight the tension between the fed and the administration? iya: absolutely. i think what we need from janet yellen over the next few days is a framework. there is going to be leadership change. later this year, we are potentially talking about a new fed chair. she needs to come out and say we are not behind the curve, we will hike a few times. reinvestment is something we are thinking about as opposed to something we are going to loss -- launch. i think you need to take that dependence issue out. that is the fed of 2017. what does the fed of 2018 look like? erik: if they are following the

view that they are not behind in the curve, they will be pretty much the same in 2018 unless the world turns around in a nasty way. by most indications, it might run a little bit higher. what are fed rate doing down here? if you are looking at a chart over a couple of decades, in a key market economy, it runs around gdp growth, and we had now have the largest disconnect between the two in history. the last time we had a bit of a disconnecting was a long time. it had a huge disconnect between where the fed is having its rate. if they do. -- if they do not do

much in 2017, they will do a lot in 2018 or else we will have a problem. david: there is also the question of bank regulation will no doubt come up. a federal reserve member stepping down in april. a comment about the dodd-frank issue. let's hear about that. >> i do not think it will be repealed, but there might be some adjustments in it. some already being spoken about five the administration the list demanding of community banks which is a relatively small proportion of the banking system. david: are we seeing a gap opening up between the trump administration and the fed about

how much deregulation will be in the banking system? erik: i think that is right. i think there is little doubt about that. i would be surprised if there are fed members who think it is wise to roll back dodd-frank. short-term, it might increase growth, but it is something i think history will tell you probably raises the risk of a problem on the line. i do think there is a gap developing for sure. david: that is the economics of it or you for sure. on the economic side, the president has issued executive order saying they want to look at dodd-frank hard. who will win? priya: if it is a small, community bank, i think they would be a winner. country is actually trying

to implement it. so, for the bank -- for the u.s. to not follow it, i think it would hit the big banks hard. i think it is about the details. we have to see what they are talking about. i think it is likely about small, community banks. in the large banks, there might be changes. the: real quick, eric, to point him and we did see congress send a letter to yellen saying not to participate in what is going on in your. we do not want what is happening in europe to happen to the banks in the u.s. is this an issue of congressional oversight at the end of the day? erik: i think it could be. come outhing that has of the white house in the past few days, it is possible to spin it in two ways. you could take an optimistic and hope that the

deregulation will only affect the small, community bank. if gary: is involved -- gary cohen is involved in it, i think that is something he has in mind. alix: erik, thank you for joining us. we have full coverage tomorrow of the fed chair janet yellen's testimony starting at 10:00 a.m. eastern time. coming up, prepping for volatility. is there is that on the euro gaining momentum -- bearish betting on the euro gaining momentum? we look at the rising political risk spreading throughout europe. as we had to break, the icing

content -- the deicing continues on prime minister justin trudeau's plane before his trip to washington, d.c. we will listen for that conference with president trump later in the day. this is bloomberg. ♪

♪ emma: this is "bloomberg daybreak." i am emma chandra. time now for other stories making headlines at this hour. i am emma chandra with your bloomberg business flash. it's which of them, they have rejected the government's appeal to increase corporate taxes. the measure would have given the corporate tax hike in

development. the european commission says that president trump and brexit are heightening economic risk in the euro area. the european union is preparing for potentially tough times as president trump takes a more protectionist trade stance. in france, investors are starting to realize there is a chance that populist candidate could win the election in spring. that is occurring best according to early that's in the options market. tomay require investors scramble to safety in the german bunds. some are suggesting the 10 year yield could fall to zero. i am emma chandra. this is your bloomberg is this flash. alix: taking a look at the german bunds bread here, this is the five-year yield.

it is up on about 56 basis point. it is nowhere near the highs we saw in 2012. with us is erik nielsen from unicredit. how nervous are your clients? erik: in europe, they are somewhat concerned. outside of europe, they are very concerned. the further you get from it, the more work you are. you should be somewhat worried. in my opinion, it is not completely different from the u.s. in the sense that you have two candidates, one a real disruptive force up against someone we know. you have someone we know who is more of an insider, and someone you do not and that can be a

concern. france is struggling to get over 25%, so the other candidate has to be pretty bad or something dramatic has to come up to swing it. alix: nevertheless, you bring up the u.s., and all the research i am seen reminds me of the election. how do you price in risk? if you bet on a trump win, you were wrong. so have you factor all this in as we gear up for the elections in april? erik: that is the question. we do not know how to do that. the reason why i am a little more optimistic is that we have from last year these regional elections where she came out leading in six regions in france

and she did not win any of them in the second round. 22% at thatabout time, and she could not capture more than that. i think that is a fair way of thinking about it. theref you were to think is a small probability of her winning, and i think it is a small probability, the consequences of it could be catastrophic. investor, you are now multiplying the small number with a very big one, and you are starting to take intellectual chance in a sense. david: there is a sense maybe they are overpricing the risk of her victory. where are we seeing the overpricing of that risk? there is a good answer, maybe there could be a big rebound? france has shown off too much. i think italy has shown off too much of this political noise.

it could be worse before it gets better. you have to be brave, and you will have to be prepared to take market losses. i would say in my notes yesterday to client, one way you buyinge hell of a opportunity on may 8 when we will learn certainly who france will elect. there is a chance they will elect someone who is very good for france in the european corporation and what have you. the bigger probability is that europe comes out of 2017 looking pretty good. erik, great to have your perspective. coming up, the european commissioner for financial affairs joins us to discuss the file from brexit and the upcoming french elections.

this is bloomberg. ♪

david: this is bloomberg. i and westin. -- i am david westin. their house party been a delay thanlling that key post any time in history. there are also several senior treasury appointments that need to be made. according to bloomberg news, the consequences of what she calls the, quote, "treasury power vacuum." erik nielsen is still joining us from. tell us about this power gap and what the effect is. conflictingt is

messages good we think steve mnuchin will get confirmed letter today or tonight. it should help with the policy confusion. you have different parts of this administration saying different things and no one quite knows what the policy is going to be. david: even stephen mnuchin takes office in the treasury department, it is a little lonesome at the top. have they named other candidates for the 20 other positions? >> no. and another of people -- a number of people have turned down job offerings at the treasury. a number of important positions at the treasury continue to go empty at this moment. he's going to have his hands fulfilling those jobs, and he is going to have to do it quickly. david: erik nielsen, what does this mean from your point of view? erik: it means from a market point of view, you are going to continue for a good long time

with policies and measures being announced here and there and everywhere. in the best of circumstances, they will be in a poor fashion, so with confusion. the normal way that government works where it comes through the system and is then vetted at senior levels before being presented to the president will likely not be in place for a long time. currency,aking to the the treasury department is responsible for deciding what we do with the u.s. dollar what is going on with that right now? erik: i think this is a vacuum. i think everyone in the market had a good laugh when they had calledat trump the national security advisor at 3:00 a.m. in the morning to ask if a strong dollar is good or bad for the economy. he responded, "i do not know. talk to an economist."

so, there is a lot of confusion. there is a general feeling that trump is thinking about the dollar in terms of his protectionist policies. the real issue where one would think the administration that a weak dollar is good, mnuchin likes a strong dollar. david: that he so much. eric andyou so much, marty. alix: coming up is the meeting later today with justin trudeau and president trump. this is bloomberg. ♪

♪ alix: reservations for march?

the market seeing a chance for a rate hike in march. janet yellen press for her testimony to congress. president trump eases rate tensions with japan as justin trudeau steps into the hot seat. the nasdaq keeps on climate. they are kicking off the trading week as -- at record highs. i am alix steel he with david westin. -- here with david westin. jonathan ferro has off today. futures trading up four points on the s&p. the dollar continues stronger. the dollar-yen up on a winning streak. treasuries yield back up by about three points. in other asset classes, have to take a look at the vix. copper on a tear over in london. oil is around session lows.

morning,ter this president trump will meet with canadian prime minister justin trudeau at the white house. as with prime minister shinzo abe of japan, we will look to see what signals the president's sense of relations with canada. we are joined now by our correspondent at the capitol building. kevin, give us a sense of what will be a win coming out of this meeting? that: first and foremost, there would be no political blunders similar to what we saw when president trump had his meeting canceled with the mexican president. the second issue will be on trade and trade negotiation. before trudeau and president trump meet at a press conference at the 2:00 p.m. hour, they will hold a bilateral trade meeting at a working lunch. this will be a backdrop for whether or not canada is able to

negotiate with nafta. in particular, many canadians are concerned that the president's relationship with mexico could negatively impact their position at the table on their own. -- own position on trade. david: we have not heard much about what he wants out of canada. we have any sense of what he will ask of the prime minister? not heardhave consistently about what he once to do. we have heard him say consistently that you want to create an environment where they can work well together on a u.s.-canadian border. there is concerned not only about the mexican border, but also the canadian border. i will look -- i would expect them to raise that point. between the two leaders, you have one who is a progressive

liberal, and then you have donald trump. so, there is a question of whether these two men will be able to get along. david: all the markets are affected by trade. is this likely it could turn a security issue when you talk about the border? kevin: i think a huge part of this will be security. it allows president trump to shift the conversation in terms of how his national security team right now is facing a lot of pressure. i think if you are looking for ways in which president trump thatind an area of unity would be a key, specific topic. evin, thank you so much. he is bloomberg's chief political correspondent. alix: what is happening with the canadian dollar? turns out, not much of anything. you see the 50 day which is the blue line cross below the yellow

line. that tends to be a signal of a weaker dollar and stronger canadian dollar. the bottom panel is the average true range. you can look at it as a measure of volatility of the canadian dollar. that is also falling. strategy, --pic affects strategy, i look at that chart and i do not see much risk at all for the canadian dollar. >> not a lot of risk at all. is there is of it very little nafta risk priced in. trade with canada is much more balanced. we import a lot of oil, so it is a strategic oil supply for the u.s. market. the tensions are not quite there is they are with mexico. alix: we do actually need that

type of oil from them for our refiners. david: explain that to me, because nafta is one agreement. there are not two separate agreements with canada and mexico. how can they negotiate the mexican part without renegotiating the canadian part? reducerve one low-cost , butoducer, who is mexico this is a problem for canadian manufacturers as well. every car being sold in the united states has parts coming from mexico, canada, and the u.s.. it is those global supply chains that could be targeted. i would not be completely relaxed from the canadian perspective. alix: how much risk should be priced in? or is this how you predict based on donald trump? is pacing in a lot

of negatives. there are base case is that it -- 20 222 range that 20 to 22 range. risk priced in. in terms of relative differentials and things like that. --r chart looks david: what does that tell justin trudeau before he meet with the president? if you read the canadian press, there is a focus on forging a personal relationship. it is not just about nafta. you have the oil pipeline approvals that are very important of getting western canadian oil to u.s. refineries. -- or is a feeling

that if nafta is not there, canada will still remain a trading partner. alix: so, is this due to dollar strength or a tad of weakness? >> i think it is a bit of both. i think it is more risk to the canadian dollar in terms of nafta. ultimately, the main driver is u.s. rates, and we will hear from yellen on tuesday and wednesday. if u.s. rates are going higher, this is a divergence rate the canadian bank is looking at. david: so, it affects monetary policy and raising rates as opposed to what donald trump may want to do with fiscal policy. >> if you put in extra points for the forecast for accounting for fiscal policy, we just do not know how it will play out. policy, the fiscal

u.s. economy is in pretty good shape. the economy is doing fine. inflation is picking up. ,iscal policy could add to that but even without it we are in pretty good shape for the long haul. alix: what is interesting to me is that there were some cracks that emerged in the data. expectations really took off. you could make the argument that because of the uncertainty then you do not sense. have you incorporate those dollars into your thesis? it didn't come off, but those indicators were at cycle high. election year. indicators have all search after the election. after the election. i think some of the rhetoric shifted off the economic agenda

to some other issues. not mean that consumers are getting pessimistic. i just think some of the euphoria is tapering off. david: is that true in the fx as well? >> watching the u.s. financial conditions -- what happened last year? really, what happened is that it prevented a strong dollar trade. creates a more positive backdrop for that trade to continue them was the case for months ago. david: thank you so much for being with us today. coming up, president trump is set to meet with canadian prime minister justin trudeau are today in washington. newsll bring you the joint conference that comes up at approximately 2:00 p.m. eastern time on bloomberg television and radio. in.ng up, steve mnuchin this does create a new

deregulation rolled for banking? this is bloomberg. ♪

♪ alix: the future of bank regulation has been blown wide open. stanley fischer, vice chair of the fed, raised in -- wade in on in ontential -- weighed the potential for a new look at dodd-frank. >> i do not think anyone knows what is going to come out of the new administration and congress on deciding on fiscal policy. at the moment, we are going strictly on what we see as responsibility according to the law. alix: he goes on to say that he

does not believe dodd-frank as a whole will be repealed. he believes there may be adjustments. however, as a whole, dodd-frank could stay. so, what will happen? what is going to stay in what is going to go -- and what is going to go? >> no one actually knows. it would take a lot for them to repeal it in terms of the entire act. what they can do is repeal parts of it. they can also put in regulators into key positions who can change the rules, rewrite the rules, soften the rules. because of be easy, the rulemaking process in the federal government. yet the put the rules up for comment, received several comments, and then discuss those comments before they can do it in a final way. alix: in terms of the impact on

big banks and smaller community banks, they do not quite have the same impact. what are we going to hear about that? banks havee smaller criticized the law as being too broad and impacting them too much because they do not have the same systemic risk that bigger banks have. the fed has been listening and said the willing to back off on some of those regulations. that has not happened yet, but it could happen one way or another. david: so, listening to janet yellen this week, how much power is she going to happen when president trump could nominate three new members to the fed? ael: even if you nominate people, they may not necessarily get on the board, because they have to go through the confirmation process for some time to come. the real issue is what happens

next year? her term as chair and the vice chair term will also be up in january. who will he a point to take over those jobs in 2018? david: we want to bring in john allison now from his home in north carolina. john, welcome back to the program. good to have you. >> good morning. great to be with you. david: you have not been shy about the fact that you think there has been too much regulation. if you had to write your check right now, where would you start in cutting it back? >> i would change the game in the sense of requiring banks to have a higher level of capital, and then essentially and most of the regulations. the possibility of the banks failing is very, very small. we have tried to dial -- to do is raise capital and regulatory

calls which does not quite work. so, they really have not increased their capital the way they should have it they did not have the regulatory calls. i like the choice act that is being proposed in congress which is an opt out. if things do not want to raise the capital, they can be highly regulated. if they do not have the capital, then they do need to be highly regulated. but if they do have the capital, they need to serve their client base. cohn, we spoke with gary he was very strong in his view that we set to high capital requirements. do you agree with that? we shut believe the way it down is by tightening lending standards. my career in banking started at small business loans. the lending standard today for small business is for startups and midsize businesses that want to expand.

they are the tightest they had se950's -- sen the 1950's. it is not that the capital is the problem. cannotblem is the banks make that traditional kind of loans that usually make. david: they seem to be making loans. if you go inside the bloomberg terminal, the look at industrial loans are at the highest percentage of gdp than they have been in decades. they are making loans. >> they are making loans to very big businesses. with these low interest rates, people like apple or borrowing money and buying stock. , whatthe start of market i call small business capital lending.

so, the financial market has shifted out of the banks, but all the high-end companies are buying stock back and doing mergers and acquisitions. you are seeing a lot of that activity rather than creating new businesses which i think is vital to economic growth. david: i understand the basic capitalion between requirements and regulation requirement, but is there that then of a line? isn't this the point we get into things like the stress test to try and flesh that out? banks should stress and their owns organizations. when it is required by regulation and everyone have to use the same risk weighing for assets, it is a self-defeating analysis, because effectively the fed lowering the risk on

asset means that less capital is raised for that asset. that is exactly what is happening -- what happened in the housing market. before the financial crisis, you could have happened much capital for a mortgage loan than the more good -- than a loan to exxon. hing of the risk is through self-analysis. it is a self-defeating strategy. energy was rated as low risk, and is now rated at high risk. they encourage ms. investment -- stment by how much you are allocating to that segment. : john, your name came up as a potential candidate for the vice chair of supervision see. have you spoke with donald trump

about a position on the federal reserve? >> we spoke some. think, in a certain sense, the federal reserve in regards to monetary policy, has an impossible job. we know that price setting does not work. if we set a board, the price would be too high or too low. the same problem with the federal reserve of the price -- setting the price is facing the same problem of setting a price for interest rates. acting like you know what the rice private -- the right price a formay -- money is is of arrogance. if you provide base money through the federal reserve but make it harder for banks to make traditional kind of loans, then

you actually slow the growth rate of the money supply, because 90% of the money is how banks lend money to other businesses and individuals. david: john, i know you might feel a little awkward about the job potential, but i want to ask you a different question. wanted on any job you the fed or administration, what would it be? >> i would have to think about that. i've not really thought about the options. i'm not sure i want to go back to washington, d c most not the most fund -- fun place to be, to tell you the truth. david: john and michael, thank you both so much for joining us. alix: coming up, janet yellen has hurt testimony to the congress about key u.s. economic data. later, jp morgan's chief economist michael for early will

join us. this is bloomberg. ♪

♪ alix: this is "bloomberg ."ybreak i am alix steel. tomorrow, you get cpi and mortgage activity. you also have janet yellen speaking as part of her today testimony.- two day we dissected janet yellen a lot in the last hour and a half. so let's look at the other data. what is the key thing? >> probably will give us our first look of inflation going into 2017. it has really flattened out in the past several months, so we have not had that resumption or upward trajectory we saw earlier in 2016. there is a little bit of data.als in the

the inflation data tends to be stronger in the first part of the year. we could see a boost on wednesday when we get that data. alix: on the heels of that, how will investors react? as far aslation rate those tipped securities have gone way up since the election. in the last few weeks since president trump took office, they have started to teeter and trade sideways or a little bit down. investors are sort of wondering if we will get that inflationary boost we thought we were going to get. it will be interesting to see if there's that same demand for tips as there was a few weeks ago. alix: i am excited about the data. tell us white it is so it is song -- why interesting. >> it tells us who is find two month treasury bonds. forwe will see, especially the central bank portfolios,

what they have been doing with treasury holdings and who is willing to hold our debt. that goes part and parcel with the tips. what kind of demand is therefore our government after, has come in. how is that changing. i love it. i am excited. think you so much, matt. 10:00 eastern, we will have a special coverage of any -- tomorrow morning at 10:00 eastern time, we will have special coverage of janet yellen's testimony. ferolicoming up, michael will join us. this is bloomberg. ♪ . .

alix: this is "bloomberg daybreak." i'm alix steel. the dow jones is continuing that rally from friday, that record rally, up 59 points, futures up

wi-fi points as well. to rally asnues well. ftse is up by 7/10. in the currency market, strong dollar continues to be the case. i am looking at strong dollar cad before president donald trump and prime minister justin judo's meeting -- just trudeau's meeting. emma stone is here with first word news. has rejectedland reform corporate taxes. it would have given breaks to companies for patents and research and development. to 41%.ejected 59% prime minister shinzo abe spoke to the press after returning to

japan after meeting the president. over the weekend north korea tested another ballistic missile. trump said he would consider all options on the table. meanwhile, president trump well meet with canadian prime minister justin trudeau today. the president's pledged to could be a nafta problem for both countries. you can see that here on bloomberg intelligence. global news 24 hours a day powered by 2600 journalists and analysts in more than 120 countries. emma. thank you, people will be focused on what the fed will look like under president trump with fed dan cirillongelo -- stepping down. joining us, an analyst with

jpmorgan, michael feroli. to be a it's going different fed. do we have a sense of what president trump wants at the fed? policy, it military is unclear. during the campaign he said on one hand i'm a low interest rate guy, but yellen was holding down the interest rate too much. it's unclear. will shortly have three vacancies on the board. at least one of them will be vice chair for supervision, which is going to be more focused on bank regulation rather than the macroeconomy. then there's an open seat for community bankers. it could be some of those agencies are not necessarily filled with people who love a very strong conviction on monetary policy, at least at the outset. david: and the vice chair for supervision has been open since dodd-frank was passed, actually.

dan cirillo has essentially been filling it. he has been aggressive on regulation. to what extent do they have discretion to back off on some of that regulation? michael: there is a fair degree of discretion even though the bound byremain dodd-frank as long as it is on the books. serving ased tarullo the vice chair. he technically wasn't. that was a big sticking point between the obama administration and congressional leaders. i think there will be a big push to have that fold. that's also the relationship between d.c. and the fed. willoughby urging to go to a rules-based monetary policy or more congressional oversight. will that be the fed as we know it after 2018? michael: i think there will be some changes, as you say, related to transparency, things of that nature.

i think going all the way to a tailorable for setting monetary policy may face an uphill battle in the senate. some of the changes may be more cosmetic then really pushing policy into a straitjacket. alix: you sound so optimistic, michael feroli. ok, what can we expect over the next 48 hours. when you look at the probability of a fed rate hike in march, that has been slipping ever since they hiked in december 2016. are we going to hear cautious hawk from janet yellen or another dove from janet yellen? likely: i would say were another dove. you have to remember the late january fomc statement did not really change the narrative from last year which was the outlook for gradual rate hikes. since that statement all we really had was the jobs report that was mixed. i don't see any big reason why

she would feel compelled to change the narrative, at least relative to where it was in january, which, as i said, looked generally kind of dovish in his nature. are you in the market looking for to rate hikes or the fed looking for three? michael: i think the market will continue to look for two levels. -- itk what will change is not yellen. she does not have the desire to change that expectation too much. alix: all right, thank you very much, michael feroli. we will look at the data. joining us, a technical strategist from his office. i'm looking at the s&p. we are right around record highs. take a look at the bloomberg. i'm looking at the 5100 and the for themoving average s&p. extended beyond all those

levels. what does this chart tell you? the s&p chart is definitely an uptrend. bulls on the s&p 500. see 2400-plus i july, august of this year, and were not even ruling out 3000 some time by 2019. bigger picture, we are very bullish. however, in our most recent note, we did note there were tactical concerns i think investors need to pay attention to, tactical meeting may be the market pauses here. one of them, the mark sell signals on the s&p 500, on the nasdaq. these are tactical, countertrend pause signals within the uptrend. we are looking at several factors. we are taking volatility three months out, expectation

volatility three months out. taking that higher than the vix. have that chart for you. i want to show this to our audience. ou can see you are looking four 117 would change the game here. this forecast see and is that definable? i do think it would be viable. if you look at the presidential cycle, the first year of the presidential cycle normally gets an interruption in february. this february, so far we are not getting it, but is not even half over. i think the market would find support somewhere around 2250, maybe 2230 or so. even if you pull back further, there's a lot of support where

the market pulled out at the election, 2180. you will probably find support at overhead of the 200-day moving averages on the dip ahead of the nice rally into the summer and even beyond that. would you be looking at in the technicals to tell you there is a breakout to the upside? thehen: the breakout to upside happened. you had 13 years ago that was a secular breakout. you had one last july that was a cyclical breakout. both of those counted to 2400-plus by the middle of this year. a really short time. short-term counted 2330, 2335 , maybe an upward sloping channel on the s&p. 2320.right at the market could find

resistance. if it does not find resistance, than is going parabolic. if it goes parabolic, you just write that up. right now we do not have the confirmed correction risk. we do not have the vix below 1.7, we do not have breakdowns the rsiptrend lines for and the dailies. these are things that would trigger the dip and we are not getting those signals yet. those are things i think we need to pay attention to moving forward, given that the market is in uncharted territories here. you brought up the list of things we're looking at. we have a full screen we can pull up to show our audience. one thing you did not mention was volume. a stronger ball him on the selling versus buying. you are look at the rsi, the vol s&p.ratio on the talk about that. quiten: our indicator is

bullish, just like 2013. there are two indicators we are paying attention to. one is our volume intensity volume, which is selling volume and buying volume, to put it in plain english. buying volume is still somewhat stronger than selling volume. it is well off the peak, meaning this is a later stage type of rally, but if that selling line goes beyond the buying line on our indicator, that would suggest you're getting distribution and the market. , thether indicator advanced supply line. we will have an advanced decline line of that. basically, that peaked in december. there is a six-week divergence there. meaning that selling may be coming into the market quietly. i mean, this is a big money indicator. fore is somebody selling

that to happen. since it's the most heavily traded stocks, it is big money. alix: the next question is, what is going to leave the market. what are you looking at the nasdaq in terms of technical levels. we love the nasdaq. we love the nasdaq composite. both of those indices have regained leadership status, especially the nasdaq composite. we're focused on that support level that continues to hold of 2130.e march peak if you draw channel lines on the nasdaq comp, we are closer to the channel bottom than the channel top. at the gym top, there are pointt record rally we saw on friday where all the major indices closed at record highs. in other asset classes, it is

the story of the strong dollar. you see yields backing up, treasuries continue to sell off, after the u.s. presidential election continuing. dollar-yen up .6%. oil slightly weaker on the day. now to emma chandra with your bloomberg business flash. -- a premium for the company's closing price on friday. itsi arabia has gone beyond obligations to cut oil production. told opec that they cut oil production the most in eight years. were plunging. just in time for valentine's day tomorrow, chocolate has gotten cheaper. pulling biggerre

harvests that have pushed cocoa virtues and has cut costs for companies that make chocolates and cookies. that's your bloomberg business flash. this is bloomberg. alix: david, i heard if you want to buy something pretty for your wife, copper. forget platinum, forget diamonds. david: she will appreciate that copper, yeah. alix: you can click on bloomberg go> and you can interact with us daily. > as it is tv

alix: this is "bloomberg steel.k." i'm alix you have equity futures grinding higher. the dow up by 50 points. but the idea here is we have

that record rally on friday. all major indices closing higher, the grand slam, if you will, and that rally continues in the market if you look at futures. it's also a global rally. the fx market, it continues to be a story of a stronger dollar, weaker treasury market. you have long stocks, long dollar, the short treasury trade playing out. david? own guye will go to our johnson in london. he has an important interview for us. guy? guy: elevated risk is what the european omission is saying today. we are joined by pierre moscovici from brussels. commissioner, thank you for taking the time to join us. one of the things you said today expecting a much milder story for the u.k. economy as a result of brexit. things come from this. first, does it worry you are

struggling to predict the outcome for the british economy and what message does that send to the rest of the eu? first, it is true we have adopted our forecast for the u.k. we thought that growth, which was previously forecast at 2%, would be up 1% in 2017 and we see that there is a delay in the effects of the brexit -- sorry, investment concern. this is why we now say 1.5%, which is online with other institutions all around the world. 1.2% in 22019. we still believe that there will be significant effect from brexit, but that will be longer in time, and lucky for everybody, maybe weaker. of pluckyto be sort

about this, why should people believe the forecast coming from economists? they have been so wildly wrong, it's hard to put much store by them. well, frankly, i don't see any kind of argument about that. right or wrong, our opinion, which is based on data which is also based on thermation we have about brexit itself, the negotiations, yes, will start is that -- investment will slow down, and that will impact growth. but again, we wouldn't say here that is good and that growth is kept down. -- lessve it will be than expected. but that's good news for all of us. the fact that the earth will be

impacted in the u.k. more than it is today would not be good news. guy: no, i think that's -- pierre: because it is a member of the eu until the moment it is not anymore. guy: absolutely. out of curiosity, until that point in time when the u.k. is no longer a member of the eu, have you modeled what the u.k., if it were to significantly cut is corporation tax, aggressively let's say, would have on a, the u.k. economy and b, the european economy? pierre: no, because now we are at the moment when the british parliament just agreed on and then5 notification we will open the negotiations. so, it's really unrealistic to speculate about the outcome of negotiations that did not even start. we must now move step-by-step.

we will negotiate in the interest of the 27 members of the eu outside of the u.k.. course, it is rational that the u.k. is no longer in the market. we will say that they have full freedom and they can pick and choose. and when you're a member of the club, you have privileges. you cannot have the same once when you are no longer a member of the club. being out must not be as good as being in. for the rest, let's wait and see, as you say, in the u.k. don't believe the u.k. can and will be a tax haven. guy: ok, commissioner, you said earlier it would be a tragedy if france words to leave the single currency. do you not worry that by suggesting to the next french are playingat you

into the hands of marine le pen? there was never austerity in france. in france. austerity france is at the right point, under 3%. they must go on. why? it is a question geopolitically and economically. you know that getting more is not a factor of strengthening for an economy. aremarine le pen and france attached to the euro. they know that getting out would really be a tragedy in the suicide. guy: just a quick question. think that the accountant will return the bailout, the auditors will be back in athens? i am going to meet alexis tsipras on wednesday. i can confirm that. discussing to us,

find a way so that we can asclude the second medium fast as possible and in the best way because we are building a success story with greece. in the forecast, greece will be at 3% in 2017. if confidence is back, it , they wille on track go on. we will absolutely have a deal crisis.d any greek there is no reason why there should be one. we are examining right now how we can find a way, soon, very same. guy: commissioner, we believe it there. thank you veryi, much indeed for your time. alix: thank you for the interview. coming up, president trump will meet with canadian prime minister justin judo parade we will bring you that live on

television and on radio. s&p futures up by five. this is bloomberg. ♪

alix: welcome to "bloomberg daybreak" on this monday, february 13 there is still time to time to buy your valentines present, guys. you've still got time. here is where we trade. as of the futures up by five points. continuing that record closing rally we saw back on friday. dollar strength continues to be the theme in the market, dollar-yen up right point percent, and the selloff in treasuries continues. in other asset classes, guys, fearyou look at where the is. gold goes nowhere. copper a slight lift, crude is softer on the day. david? futures are up

again. maybe they have resumed that momentum they have shown since donald trump's election. one question, how much further do they have to go and what they need to get there? joining us, the global chief investment officer for blackrock and our colleague oliver renick. conflicting things. we hear some people saying it's really only begun to reflect what is possible for trump. what is your view? >> they are constructive on u.s. equities. valuations are high. we do not see them being a constraint for the u.s. market. what we would say is we see a lot more in the price for u.s. stocks, more optimism around the u.s. market than other markets world.the we think there's more opportunity outside the u.s.

rather than inside the u.s. you can'thard, if sort that out with respect to u.s. equities, how much is it reflecting the larger global reflation trade as opposed to these cyclical tied to the anticipation of donald trump? theard: what you saw was reflation trade started to affect the u.s. market, i think global markets as early as the summer of last year. the electionfter we started to see optimism, in around donald trump, and that optimism in particular impact small stocks and stocks that would benefit from a looser fiscal policy. we look at what is priced in today, the markets moved to think, a significant amount of the improved outlook. what has not moved the price in is a staying move to a higher growth path and a significant ,hift in taxation toward large unfunded tax cuts. there is certainly room to go if the market is positively

surprised on either of those fronts. you follow the stocks obviously. what do the numbers tell you? oliver: we are in need of good for whatgrowth analysts are baking in now. we are looking at 19% earnings growth for the year out from now in terms of analyst estimates. if you look across the euro stoxx 600, there's even more. even bigger growth opportunity, if you want to call it an opportunity. i think that is kind of richard's point. overall there is obviously still questions that need to be resolved. but in terms of looking at the fundamentals, earning season has gone unnoticed when it has been pretty positive. that's a rare for a market that has gone six quarters without any earnings at all. also, looking at where ceo's are going to put the money. will it be shareholders, by that dividends, or capex?

right, we will look at security sing with you, richard. the disconnect between the stock market and the bond market desk here is what our guests said. >> the treasury market is saying, hold off. we're not sure this is coming through and the equity market is a little euphoric. it's very clear the details of the tax reform will have significant winners and losers. david: richard, -- alix: richard, do you agree with that characterization of the market right now? richard: we have certainly seen within the equity market waxing and waning around optimism on tax reform. while the overall equity market has stayed quite stable, you have seen quite significant shifts in the leadership even within the last few days. we have seen optimism around tax reform and that leadership going back to some of the more cyclical areas of the market going forward. but again, what we are

optimistic about is the pace of global growth coming up. i would like to talk about what is often referred to as the trump rally and the reflation trade. we have seen no signs that the reflation trade probably is coming off. all of our economic signals suggest that global growth and u.s. growth continue to surprise to the upside. moving forward, we still think consensus expectations are lagging the actual economic data that is coming out and we are seeing increasing signs that reflation is moving from a u.s. phenomenon to a global phenomena. this is not simply the trump trade. i think markets are adjusting to a very different economic environment. alix: that's a good point. it's a different story than potential tax reform here in the u.s. picking up on that point of what you have this rotation, but in individual stocks you can see a lot of movement despite the positive data -- my favorite chart of the week, oliver. you.e is for

the white line is the correlation and the blue line as -- is the s&p. it breaks it down. it makes the stock picker's job easier. you can pick winners and losers. in some senses make it easier because that is what fund managers have blamed their performance on. alix: finally holds them to account, right? oliver: now we will see if it does make it easier or there is another structural impediment to picking charts. that's our goodly one of the most important charts, because you see the correlation by a lot of different measures the past couple years and now you have things moving opposite directions, that is explaining the vix, pretty much, when you look at how correlation gets priced into volatility. that is why we keep the vix so low. engenderhat does enthusiasm on the part of active

managers. right now we see those etf's, but we will see them pick up on individual funds as well. you have the reflation trade. you can have reflation without growth to support it. to what extent is this supported by fundamental, underlying growth as opposed to sentiment? richard: we are seeing both positive growth the prizes and --itive reflation surprises positive growth surprises and positive reflation surprises. that started in the back of last year. starting to see inflation surprises positively. since the election, the biggest inflation surprises have come outside of the u.s., from a very low base, at a level of inflation remaining very muted, but things are starting to pick up. it's very tentative at this stage. also, look up the growth environment. i think it is worth emphasizing much of the improvement we are seeing -- we have seen some of the sentiment indicators, survey

data -- you mentioned the pmi's earlier -- but we see that coming through with actual corporate activity. are we going to see corporate spending pickup to justify the goodr moves you see in a is? we think we will. we are starting to see that. that is what the market needs to see to move higher. out,: as oliver pointed there are two different ways for companies to support their company, stock buybacks and evidence and capex support, which supports the believe in the top line, the revenue coming up. which are we seeing at this point? richard: the last year, it has all been about dividends and by back. if you look at u.s. companies, they are spending more than 100% of the cash flow on buying back shares and paying back dividends and that is clearly unsustainable in the long run. what we're just starting to see, the first signs of animal spirits returning. companies are indicating a

greater willingness to start to in anticipation of stronger demand. i think we need to see more of that if the market is going to move higher this year. ok, oliver, if we need to see more lending and less buybacks and dividends, what do we need to see to see that turning point? you'reare at citigroup, saying, we have been seeing capex growing the last two years. there's also the overarching question about whether markets preferred shareholder activity to capex. but to your question, just looking for corporate ceo's have been very vocal, i think in some of the areas where they expect spending, fiscal spending to have spurred growth isindustrial companies, it sort of the heart of america kind of, the caterpillars, that kind of stuff. but companies ceo's have been quiet on guidance as well. the ideas go hand-in-hand.

if you look at guidance put up this quarter, it's pretty slim. not in terms of cutting expectations, but being quite. once those to come together, i think we will get more clarity. talk richard, we will about other picks like the european stocks call in their excitement, but in the u.s., where would you be buying? where is the opportunity? two main areas. small cap stocks are attractive. they have done well. but in a reflation environment, small caps of for the run. broadly, we like the value areas of the market. that includes energy, financials, some of the cyclicals. we have seen value outperform, but typically when global growth accelerates, value is there in the market. alix: all right, great stuff. thank you so much. blackrock'sk and turnill, you are

sticking with us. our guest will join us to discuss the outlook for stocks at all-time highs. this is bloomberg. ♪

with u.s. stocks set to open a record highs, where to invest? european stocks have become more attractive. ll,ll with us, richard turni global chief investment strategist for blackrock. richard: i think there are three reasons to like european stocks you are by far, most important is earnings. for the first time in five years, we are seeing a significant turning point, but

because european growth is starting to pick up, but also european stocks, very highly geared into the global economic recovery we are seeing. on top of that earnings story, it's around sentiment. many investors still very cautious towards europe. that's a buy signal. finally, it is about valuation. the european market looks very attractively priced. a lot of that has to do with political fears, which we feel may be close to a peak. alix: talk about political fears. is positiveyone who on europe will say, guys, is the political fears that are the worry. you see the spike right around the french elections in april. how do you use this as an opportunity? richard: typically you want to buy in the markets when fear is high. 2017, weook forward to

have importance elections, high degree of uncertainty around those elections. we have elections in germany, the netherlands, perhaps most important in france. also we have elections in italy. there is fear around those elections, but when we look at the likely outlook for those risk of a the significant political shift in france is still very low and i think, overestimated by the markets. markets you see the starting to discount, there's much greater concern going forward. richard, when you say european cities are attractive, over what time frame? when he talked about the elections, by the end of the year, we will know the outcome. but if you talk to some investors and you say you look longer-term and compare with the risk it, it's not that attractive. it is too early to

make a big structural call for your. the european economy has faced major headwinds, headwinds that will keep growth at low levels for a long time, head of the stock market where the interest rates are likely to be a low levels. that's a challenge for the bank. many of the banks have not done as much as u.s. counterparts to address balance sheet issues. it's too early to make a secular call for europe, but i don't think you need to. this is a cyclical story. this is about european stocks looking attractively priced, well-positioned for global economic upturn in an area of the market that i think is still underappreciated your it i think is very much a cyclical story, too early to make the structural case, but i don't think you need to right now. sectorallk about the issue. banks down the road, at some point, they well straighten out their balance sheets and catch up to the united states? newsrd: i think the good

about the european banks is a profitability issue rather than a solvency issue over time. we know the european banks face three big headmans. first is growth. the pace of growth in europe is likely to be much lower than that of the u.s. demographic at wins in particular providing a constraint. second, the rates in the shape of the yield curve. we expect interest rates to remain low for a long time. that is a big headwind for the banks. and finally, the banks are not taking enough measures to address those balance sheets issues over time. some progress, but not as much as we would like to see a red or are still big head winds there. but the margin is in the price. how much is the price right now? you could potentially see increases in share price. the ecb and mario draghi, to what extent is your

call dependent on the seb remaining as accommodative as it has been -- on the ecb remaining as accommodative as it has been? richard: our call is not about the ecb. our call is about the global environment. i think a lot of people under appreciate how international the european stock market is. around 40% of the revenues of european stocks come outside of europe. those companies very highly operationally leveled -- leveraged into an improvement in global growth. one of the risks for that environment could be the ecb timing policy much sooner than expected, but our basic is continues to be the ecb will remain on its path, a gradual path, right through to the end of this year, continuing to use quantitatively, and certainly an ecb which is essentially out of the picture, supportive of financial assets and helping to keep the euro relatively weekend, that is a supportive factor around this call of

european stocks. buye the primary reason to european right now is the global environment. the: right, rather environment. how do you invest? is it an etf? you see very little dispersion across europe. i think sectors are much more important. you want stocks that are exposed to that global, cyclical pickup, in particular, companies that have more exposure to emerging markets. that leaves you toward sectors such as the material sector, the energy sector, some of the industrial sectors within europe. david: ok, blackrock's richard turnill, thank you so much, joining us from london. fidelity's director of global macro jurrien timmer joins us at the open. this is bloomberg. ♪

alix: one asset class on the move today is copper. take a look at this monster rally we are seeing. copper trading over $2.50 a pound. in london it is trading for over $6,000 a ton. let's to the trade. our guest from lynn and associates. a good copper rally or is there something else going on here, ira? : there is a lot going on. there's a perfect storm. you're right. the reflation under president the trade in the united

states, maybe other parts of deciding, but the factor is the strike at the escondido mine which is in his fourth or fifth day and we have wheretuation in indonesia a mine is working day-to-day in is going to shut down if they do not get their export permits. and they are demanding a break there on tax, royalty, and they don't want to give up that 51% of ownership that indonesia it is demanding. you get that perfect storm or 10% of the world production could be shut off this week -- watch it. you don't want to be short market like that. well, you do when you hear the news is good, probably look for the pullback. alix: this is of having an impact on local stocks. so, how do you play this?

this could be a short-term issue. this could be a long-term issue. goldman sachs estimates there could be a global out pull loss of almost 10,000 times if you put these issues together over the longer term. and they are dead right. the question is, what is the longer-term? in the past, strikes in chile have lasted as long as five months, but in recent times, they are five to seven days. you probably want to be long on the stocks you are talking about, but i someputs. protect yourself. -- but buy some puts. you have the reflation going. if got to be covered in my opinion. yes, you want to be long, but you want protection because, eventually, these items to get settled. will they get settled in a week? nah. good point. money managers cut their bullish bets last week, even though they are at record highs, missing out on the rallies.

how much catch a potential do we have in the shorter term, just on positioning? ira: that's the thing. as soon as you break that, they will want to own it again probably reasons you are hearing. you in d-up with the reflation story. are we overpriced because of these -- you in and up with the reflation story. are we overpriced because of these two mines? yes. the markets will be chasing the brakes. you've got to have put protection. 6000 was the number being advanced around last week. now you're at that number and still advancing. you've got to be careful. a must, but you've got to be in the play, in my opinion. alix: the oil rally despite the fact that saudi arabia cut the most eight years. what is the trade? you know something? i do not buy the argument that

the whole open thing will drive prices to $60. it's too easy for america to make the play for gas and oil through oil shale development. why? it's $150 million to drill offshore. ratheroing to drop dramatically from all the oil companies, but what you're not hearing is the shale guys are looking at a $10 million development. there are many wells build that have been turned on instantly. one well takes 10 years to develop. yes, opec, especially saudi arabia, keeps increasing their cuts, and that is because as much as we have 92% compliant, .he amount is not there and then you have nigeria, libya, and iran. , passionate,

skeptical. we've got to leave it there. open is next. ♪

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♪ alix: this is "bloomberg daybreak." i'm alix steel. we are moments away from the opening bell. here is how we stack up. 54 points continuing the rally. s&p futures up by six and nasdaq popping by 13 points. all the major indices as well as the russell 2000 flows at record highs. we had the dollar rally over 100 on the index spot. now an eight-day winning streak as bonds continue to selloff in the u.s.. that yield backing off by three basis points. by dollar, buy stocks seems to play out. in terms of crude, we had a decline by a 10th of 1%. -- .8%. up 59 looking at a dow

points and s&p up by five. i am looking if we cross another record rally. yes, we have another record high for the dow and another record high for the s&p. fascinating day we are seeing. the rallies -- the rally continues. david: we heard it all morning long. alix: the big question becomes how long cannot move higher if we do not get a rate hike? david: exactly. is the market getting ahead of itself? what does it need to support the numbers? alix: joining us is the director of global makro at fidelity investments. nowhere do we see that stocks continuing -- take a look at bloomberg. the white line is a chance of three rate hikes or more in 2017. banks and the s&p continue to

grind higher. how does that resolve itself? >> if you look at where the 10 year treasury is, it is mirroring exactly the market's expectation of how many rate hikes we are going to get over the next couple of years. the market is pricing 3.5 hikes. the 10 year is about 2.4. seems right to me. in terms of financials, it is the ultimate play on a trifecta a better economic growth because -- theyls tend to be tend to add to the growth story. people sector that most will not overweight prior to the election and there is still some catch up. ,s the market gets momentum that is a sector that has a fair amount of data. i am not surprised to see that divergence. we do not need higher rates to see the banks run. you just need better growth and these the structural changes

that are potentially in the air. david: you don't need higher rates, but it sure would not hurt. --ave been wanting a debate i even watching a debate. some people are saying you should not be surprised on the side of the hawkish side. and there are some people who say you cannot prove either way? >> nothing has changed since december. there is been no change. there has been a legislation. all the news that we have been seeing out of washington has been issues related to the economy. i do not expect any change in tone and i would not expect a surprise hike in march. in ifrst hike is priced you go to bloomberg. it is priced in around 70% or so. i really don't see the rationale

for the fed to change that. they are getting a free pass for june. there is no new information. i don't expect much. david: once again, defect the fed to move to the market? the market has been more reluctant about possible increases. fed futureook at the curve, for 2017, they are mainly in sync. maybe the market is at 2.5. that is a small difference. in 2018, the market is well below, and towards the bottom end of the range that the fed has. the risk for the bond market is that the fed does turn more hawkish and as i said the 10 year yield matches perfectly, the number of hikes priced in. if that number goes up, then bond yields will go up as well. but we need to see the actual sausage making in washington.

everything iccs to be pushing it back. maybe we get a watered-down version. this point, i think the market is fairly imbalanced. alix: you are still waiting to see how the sausage is made, but we have small caps, nasdaq and down all at record highs for a second straight day. what do you do with that rally? what is the strategy? >> this is a very important point. a lot of people are missing because we had been so inundated about theines incoming administration and the u.s. about the incoming administration and the u.s. election, etc., a lot of people have missed that we have been in a year now and a global, synchronized upturn. whoarge part, led by china has been able to reflate their economic system yet again. that has created a bit under commodities. if you look anywhere around

abroad, economic momentum and earnings momentum is accelerating. there is a biggest story, but maybe not a bigger story, but another story going on that not everyone appreciates because we are so inundated with headlines here in the u.s. that story is pretty bullish. that is the explanation why the markets are rallying. small caps have lacked behind large caps since mid-december. but really, it is been a very broad-based rally and a global rally. if you look at emerging markets, they have really caught up big time to the u.s. i still think in 2017, the story is going to be the rest of the world catching up to the u.s., which has outperformed really for a number of years now. alix: steven mnuchin small caps, but there is a reason why they have lagged. they are highly levered. earnings have also lagged in large caps. there is a fundamental reason why some of these sectors have not done well. how do you care that with these animal spirits if you can call

it that? >> postelection, the russell 2000 rallied for two weeks. if you look at the small business confidence survey, they have shot up like crazy. the biggest reason the small are being mentioned is the promise of less regulation. ,he regulatory angle trumps part in the pun -- all the other things going on. but in the process, small caps ran ahead of large caps. the russell 2000 has outperformed the s&p over the last seven months by 31 percentage points. that is a huge spread. now we are seeing small caps, global stocks catch up again. i do think small caps, especially need the actual ,vidence of economic reform deregulation to put another leg on here, but larger cap global stocks, all they need is the dollar just going up, which so

far it has been doing for the last month or so and that provides a fuel for the markets to catch up to the u.s. is the rest of the world inequities catching up to the united states? does that mean u.s. equities are fully valued? >> the u.s. market is fully valued. if you look at the markets right after the election and now, the racial has jumped two points. earnings are up. q4 earnings look like they will be up 7% and a far better outcome than the first quarter of last year when earnings were down 7%. make 10% ore to 11%. the earnings picture has gotten better, but the valuation picture is still ahead of that. a 20 trailing multiple or 17.34 multiple is fairly rich, especially you combine emerging markets at 12 times. i do think we will see evaluation headwind.

david: if you look around the world, when it comes to stocks, is it germany? around 11.n >> e.m. is at 12. these are forward pes. my guess is europe is going to be the sleeper hit of 2017. there is a lot of scary political stuff going on, but my sense is that that is going to be actually, if anything, a buying opportunity. lagged behind. it is early in its business cycle. it has a lot of things going forward. europe around 14 times and ems 12 times -- is a beta play on global growth. we are getting global growth. i am not surprised that you have caught up. alix: have you had to though? there are political risks in europe.

board, how do you protect yourself? >> the best way to protect yourself as an investor is to be diversified. i know that sounds cliche. but if you have a global perform ,ou of international equities and if you win on the international side, like i just mentioned, but at the trump administration -- prop agenda get so strong -- what is the trump agenda gets so strong, that could affect you was oriented stocks. the two forion of text you in all environments -- the companies and of the two protects you and all environments. i would be interested in buying some. a push beyond that will be too much, too soon for the economy. by definition, it would be mean reverting. towards 2.7,ushes

-- have a nice mixture of u.s. and international equities. alix: good stuff. we will get more from you about your earnings outlook. check -- igramming want to point now, the record highs are seeing across major indices. all the new record highs. you also have the russell 2000, small-cap, and another record high as well. markets cried higher as the dollar is up for a ninth straight session in the selloff in treasuries continues. and to a quick note, president trump is set to meet canada's prime minister justin two in washington. we will bring you that. this is bloomberg. ♪

up, chairman of the finance committee is that 2:40 eastern time. alix: it is another record day for all the major indices on this monday. the dow off by 106 points. points in thee nasdaq making another record helping to lead the way. you also have the russell finding its way higher. it is a pure cyclical trade. financials, industrials, tech -- all stronger on the day. telecom is the big loser off by 1%. earlier, we spoke with richard

colonel a blackrock who gave his case of value overgrowth. >> we still think small caps mocks -- that's a done well. we think small caps have further to run. we have value, but when you hold -- but when yield curve weakens, value is what does best. alix: we have seen this play out. the s&p riding higher overgrowth. does that trend continue. relative look at value to growth, the ratio tends to or lead the yield on the 10 year treasury. it is not surprise me that values have outperformed growth. there are three buckets. ,here is cyclical growth

secular growers, companies that i was produced very large earnings growth. there are the bond proxies like telecom, etc. over the last couple of years, it was a secular growers that did well because yields were going down and regular cyclical growth was nowhere to be seen. years, we have seen cyclical growth come back. i would expect that to continue as global, economic activity continues to recover and accelerate. how long it lasts? ultimately, i think that will depend on what we are going to see in terms of reform, etc.,lation, tax cuts,

coming out of the u.s.. regime shift, but the market is holding on to some of its ammunition. i do think that small caps are going to lag a little bit and relative terms. david: whenever we talk about earnings growth, i would like to focus on what is coming from topline as opposed to engineering and the paying of dividends. surprising are that's the number surprises of earnings are higher. what does that tell us about how people are spending their corporate cash? >> one of the issues over the last two years is that earnings have been financially engineered. i think 60% of earnings over the last year or two have come from buybacks, m&a, and other forms

of financial engineering. why not? have had a very cheap funding source. i think that will change, especially if we get some of these tax reforms. but if we get foreign cash repatriation, maybe they will use cash to buy back shares instead of issuing bonds. i don't think that will change, but if we have a global acceleration, both bottom and top lines should improve. you can see that in the earnings numbers. the numbers are improving. buybacks are about the same rate. half as whatere they were in q3. it david: i am not saying there is anything wrong with buying back stock. is there a surrogate anticipating greater demand? they spend their money to defend capital investment. >> you know, that remains to be

seen. you know, a lot of people think wewe repeat trade -- if repatriate foreign cash, we will get builds everywhere. that is a function of and demand -- in demand. that should go up in the u.s. if we get another percentage point of growth from the fiscal stock, but i don't know if the markets would see through that. will that be a temporary shock or a more structural shock. i don't find to the argument that we are going to see 4% real growth for years to come. we are too late in the cycle for that. i am not so sure we will see a lot of that. if we do get an earnings boost, the markets may look through that and say, it is not going to last more than a year or two. david: great to hear your perspective. alix: coming up in the next hour, it is bloomberg markets with vonnie quinn. it vonnie, we got all the major

indices at record highs. vonnie: absolutely. it is the last week before congress takes a break and we will be talking about tom about what will be happening this week. rbc capital of course. plus, the fed's testimony from janet yellen. keeping said janet yellen may come out more hawkish. we will be keeping an eye on the prime minister two meeting with president donald trump it alix: looking forward to that. thank you so much. as he go to break, if you have a bloomberg terminal tv -- you can click on our charts and graphics talk to us directly. it we capture the moment we had more record highs. this is bloomberg. ♪

♪ alix: welcome to "bloomberg daybreak." i'm alix steel. another record day for the s&p, nasdaq, and dow -- all three indices grinding higher to record highs falling from the rally. in s&p, we have financials and tech grinding higher. it makes it interesting for janet yellen tomorrow. deal with that, janet. she will give her testimony before congress. it is two days of testimony and there is lots of anticipation whether the fed will hike rates when they meet in march. mike mckee -- there is a debate within my bloomberg. she will really surprised the hawkish side.

another person is saying, no way. mike: the authority she will not say much. she would like to make it little news as possible. the fed does not like to make news at hearings. she will take that rain from people who oppose the fed. she will leave the fed's options open. but if she does not know what trump is going to do, she could easily say, we will stick with our projection so far. that -- ven the fact when was the last time the fed raised on that kind of percentage? want to raise in march, they will have to talk about the possibility. it is probably too early. they probably want to wait for more data. the next fed meeting is march 19. they can wait for the jobs report on march 10 that they wanted to. that may drive people in that direction.

marchgument for going in is that the economy is in pretty good shape and you do not want to miss an opportunity that something could happen. they had been criticized for missing opportunities in the past. but there's nothing compelling about it. she does not want to set the markets on edge or set the white house on it but talking about a rate increase that may or may not come. david: we will be watching this closely. what would they most like janet yellen to do or not do? mike: we don't know. she is rates artificially low for political reasons, but she should keep rates low because it's better for the economy. what do you do? the best thing for her to do is to do what she thinks is right. since there is not a clear direction at this point, there is no sense signaling one. going to hear janet

yellen outline very specific criteria for a rate hike? like this is what we are going to do? mike: i don't doubt it because they have not done it so far. they said we would be data dependent over the years. david: that is what congress has wanted to do enough that care has been willing to do it. mike: this will be more interesting about regulation and possible changes to the federal reserve. we have a new head of the senate banking committee. we will say -- we will see what he things about the fed. alix: good stuff. are 25 minutes into the session and we have a big market on our hands. apple rally 1%. it is at its highest level since april of 2015. apple to be on pace for a record close. containing markets their rally, 10% of the s&p is now hitting 52 week highs. s&p on its third potential winning streak at a record big day for the markets.

this is bloomberg. ♪

♪ 10:00 a.m. in new york and 11:00 p.m. in hong kong. from new york, i vonnie quinn. mark: and live in london, i'm mark barton. welcome to "bloomberg markets." ♪ vonnie: we are going to take you from new york to london and cover stories at a washington, toronto and tokyo. here are the top stories we are following from around the world. and markets, global stocks continue to climb as investors shift from boston equities. testimony janet yellen. testimonyellen's tomorrow. mark: helping opec going about his obligations.

politics, theobal e.u. commissioner tells bloomberg how brexit and the election of donald trump in the u.s. are heightening economic risks for the euro area. more on how the recovery has faile